Retirement pension savings in Korea surge $3.1 bn in Q4

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Almost 4 trillion won ($3.1 billion) in funds has flowed into individual retirement pension (IRP) accounts in the last year in South Korea despite the sluggish stock market as investors hope to benefit from the extended tax credit limit.

According to data from the Financial Supervisory Service on Wednesday, the outstanding balance in IRP accounts at securities firms amounted to 15.9 trillion won in the fourth quarter last year, up 3.7 trillion won from the same period a year ago. The balance goes up to 57.6 trillion won from 46.5 trillion won during the same period when adding the accounts with insurers and banks.

Individual investors can open IRP accounts with 14 securities firms. Mirae Asset Securities Co. had the largest IRP balance at 5.6 trillion won, followed by Samsung Securities Co. at 3.2 trillion won, Korea Investment & Securities Co. at 2 trillion won, NH Investment & Securities Co. at 1.2 trillion won and Hyundai Motor Securities Co. at 1.1 trillion won. The balance at Mirae Asset Securities rose 1.2 trillion won last year alone.

The entire amount of IRP balance has increased but the market is expected to undergo a change in the investment trend as investors shun investments in funds or other products that do not guarantee the principal partly due to poor performance last year.

According to the FSS, the IRP accounts that invest in products that do not guarantee the principal delivered a return of 7.9 percent in the fourth quarter of 2021. In the final quarter of last year, however, they posted a minus return of up to 17.2 percent.

The return rate remained at minus 0.1 percent in the first quarter of last year, minus 12.9 percent in the second quarter, and minus 15.1 percent in the third quarter.

Products that guarantee the principal, on the other hand, showed an average return of 1~2 percent.

Investments in principal and interest-guaranteed products such as deposits and installment savings in IRP accounts, in the meantime, rose by 2.06 trillion won from 7 trillion won in the first quarter of last year to 9.02 trillion won in the fourth quarter. Investments in the products that do not guarantee the principal, on the other hand, fell by more than 100 billion won to 6.9 trillion won.

Experts note that pension investments must be planned with a long-term perspective.

“Investors should look at the target rate of return for three years at the shortest instead of chasing a short-term return and diversify assets to prevent concentration on specific assets,” said Kim Dong-yeop, director of the Mirae Asset Investment and Pension Center.

The tax deduction limit for IRP investments this year has been raised to 9 million won from 7 million won. This means about 1.48 million won will be returned for an earned income of under 55 million won at the end of the year.